Q:Is there an age limit on claiming my children as dependents? A:Age is a factor in the qualifying child test, but a qualifying relative who is not a child may be any age.
Q:How much does an unmarried dependent student have to make before he or she must file an income tax return? A:You must file a tax return if you are under 65 years old and your earned and/or unearned income exceeds $9,350.
Q:If I claim my daughter as a dependent because she is a full-time college student, can she claim herself as a dependent when she files her return? A:If you claim your daughter (or son, for that matter) as a dependent on your income tax return, she cannot claim herself on her tax return.
Q:To qualify for head-of-household filing status, do you have to claim a child as a dependent? A: In certain circumstances, you do not need to claim the child as a dependent to qualify for head-of-household filing status, such as when the qualifying child is unmarried and is your child, grandchild, stepchild or adopted child.
Q:What should I do if I made a mistake on a federal return I already filed? A: Many mathematical errors are caught during processing of your return. But if you failed to report all your income or claim a credit for which you were eligible, you should file an amended or corrected return. To claim a refund, you must file a new return within three years of the date you filed the return you are changing.
Q:What is a split refund? A:If you are due a refund, you are permitted to split the refund any way you want and direct deposit the funds in up to three different accounts with U.S. financial institutions.
Q:How do I know if I have to file quarterly individual estimated tax payments? A:You must make estimated tax payments for the current tax year if you expect to owe at least $1,000 in taxes after subtracting your withholding and credits or if you expect your withholding and credits to be less than the smaller of two sums – 90 percent of the tax on your current year’s tax return or 100 percent of the tax shown on your prior year’s 12-month return.
SMALL BUSINESSES & PARTNERSHIPS
Q:Can a husband and wife run a business as a sole proprietor, or do they need to be in a partnership? A:For a business to be classified as a sole proprietorship, one spouse would be the owner of the business and the other an employee. A married couple who own and operate a business jointly may elect for each to be treated as a sole proprietor by choosing to file as a qualified joint venture if they are the only partners, file a joint tax return and if both participate materially in the business.
Q:Must a partnership file an income tax form even if it had no income for the year? A: Yes. A domestic corporation must file an income tax form whether it had taxable income or not.
Q:What is Form 1099-NEC? A: The 1099–NEC is a new form specifically for reporting non–employee compensation-currently defined as payments to individuals not on payroll on a contract basis to complete a project or assignment. This would include all independent contractors, gig workers, or self–employed individuals who previously had their payments reported in box 7 of a 1099–MISC form. 1099-NEC vs 1099-MISC The 1099–NEC is now used to report independent contractor income. But the 1099–MISC form is still around, it‘s just used to report miscellaneous income such as rent or payments to an attorney. Although the 1099-MISC is still in use, contractor payments made in 2020 and beyond will be reported on the new form 1099-NEC.
Q:Who requires a Form 1099-NEC? A: If your business paid a contractor more than $600 in a tax year, you‘re required to file Form 1099 NEC. However, if the independent contractor is registered as a C corporation or s corporation, a 1099 NEC will not be required. This information can be found on the contractor‘s Form W–9. Do not file a 1099-NEC for employees. Any employees will need to have a Form W–2 submitted to report wages, tips, and other compensation paid during the tax year.
Q:Who requires a Form 1099-MISC? A: If your business paid an individual or LLC at least $600 during the year in rent paid, legal settlements, or prize or award winnings, you are required to file a 1099-MISC.
Q:Who files Form 1099-NEC? A: If your business hired a contractor and paid them more than $600 in a year, it‘s your responsibility to file a Form 1099–NEC with the IRS and send a copy to the contractor.
Q:How do you determine if a person is an employee or an independent contractor? A: It’s complex, but it is based on whether the person for whom the services are performed has the right to control how the services are performed. It is not based merely on how the person is paid, how often the person is paid or whether the person works full- or part-time. The three basic factors that cover this question are: behavioral control, financial control, and the relationship of the parties.
Q:As an employer, do I have any liability for my employees receive tips but don’t report them to me? A:Yes. You have a liability to withhold and pay Social Security and Medicare tax on your employees’ tips. Employees must report tips to you if they exceed $20 a month. If the employee does not report tips to you, you may be at risk of possible assessment of the employer’s share of the Social Security and Medicare taxes on the unreported tips.
Q:Does a small company need a tax ID number? A:A sole proprietor who does not have any employees, and who does not file any excise or pension plan tax returns, does not need an employer identification number. The sole proprietor uses his Social Security number. If you are the sole owner of an unincorporated LLC that has employees, you need an EIN to file employment taxes starting on or after Jan. 1, 2009.
Q:If I pay personal expenses out of my business bank account, should I count the money as part of my income, or can I write off the expenses? A:It is recommended that you never mix business and personal accounts. But if you do, the personal expenses paid from the business account must be declared as business income. Personal, living or family expenses not specifically provided by law are not deductible.
Q:Are there limits on allowable meal deductions during business travel? A:Meal expenses are deductible only if travel requires that you be away from home overnight or if the meal is business related. If you want to deduct actual cost, you must have records of all meals. There is a standard meal allowance, as well, which your CPA can get for you.